Investment in digital startups
soars eight fold

Growth driven by Circular 331

The value of investments in digital startups surged eightfold from just $7 million in 2013 to $56 million in 2016, and the number of deals more than tripled to 37 from 11 deals in 2013, according to ‘State of Digital Investments in MENA’, a report recently published by ArabNet in collaboration with Dubai SME.

Tech startups benefited from 100 investments with an aggregate value of $119 million in the past four years, according to the report.

The average investment size has also been increasing. Average investment per deal rose to $1.5 million in 2016 from around $600,000 in 2013.

“More mature investor markets display a higher proportion of venture capital, growth capital, and corporate investors, while the less mature markets have fewer investors overall and they are mostly concentrated in the early stage,” the report said.

Lebanon ranked second in the MENA region, after the UAE, in the number of growth-capital investors and corporate investors.

Growth capital is typically a minority private equity investment in relatively mature companies seeking funding for expansion. This kind of investment does not result in a change in the control of the company.

Lebanon was ranked third in the number of venture capital firms. According to the report, the main bulk of the new corporate investors are located in Lebanon and the UAE. These include two banks, Al Mawarid Bank and Société Générale de Banque au Liban (SGBL), due to the incentives made possible by the Central Bank’s Circular 331.

Mada Arslan, Investment Manager at Leap Ventures, said that investment in local digital startups is expected to grow further as private investors have more appetite to invest in this promising sector.

Arslan said: “Even without Circular 331 incentives, investors’ appetite will intensify further when startup success stories continue to emerge.”

The country was ranked in second place after the UAE in 2016 in terms of total number of deals and total value of investments.

“Lebanon has an exceptionally high number of funds for such a small country, driven by Circular 331 of the Central Bank of Lebanon; meanwhile, Egypt, one of the region’s largest markets, has a relatively low number of funds for such a populous country with so many startups,” the report said.

The impact of Circular 331 is more significantly felt when growth capital investment is excluded. According to the report, when analyzing the investment values less growth capital, Lebanon’s share of the value of investments increases substantially.

This underlines the positive impact of the Circular on the startup ecosystem since 2014, while it also predicts a future surge in growth capital investment, the report said.

Among those startups in Lebanon that have been funded, not a single one has closed down during the period 2013-2016. This is an exceptional achievement in the MENA region.

“This may be attributed to the surge in capital brought on by Circular 331, which allows startups better access to financing and giving them a longer lifeline,” the report said.

The Levant emerged as the region with the highest proportion of female founders. The percentage of female founders is 19 percent in Lebanon and 22 percent in Jordan.